There were many winners in the game industry this year, as some companies posted strong profits and many took advantage of growing new platforms and expanding markets. Being successful by itself, however, was not enough to earn a place on this list; the additional criterion needed was to have a larger impact on the industry. With that in mind, let's examine the Winners for 2012.
It may seem odd to have a business model as a Winner, but there's no denying that this method of getting money for games has taken the gaming industry by storm. The business model actually dates back to the 1990s, when games such as Achaea and Neopets showed it was possible to attract a large audience by giving away the game, generating revenue from the sale of virtual goods rather than the game itself. Later, games like MapleStory inspired the relentless onslaught of free-to-play MMORPGs that conquered China. The West saw free-to-play become a significant force with social games, with Zynga, Playfish and Playdom leading the initial charge.
The business model came into its own on mobile platforms once Apple introduced in-app purchases with iOS 3.0 in October 2009. Since then, free-to-play games have become the majority of the top-grossing apps on iOS, and Android games are following the same path even more rapidly since in-app purchases were introduced in 2011.
This year saw the immense growth of free-to-play games like Riot Games' League of Legends and Wargaming's World of Tanks, which are making profits that Wargaming CEO Victor Kislyi calls “filthy money.” (He means that in a good way.) Now free-to-play is nudging its way onto consoles, after effectively conquering social, mobile, and MMO games. Sony is doing well with free-to-play MMOs, and Microsoft is beginning the experiment as well. Will the future of games be entirely free-to-play? Perhaps not, but it seems to be a safe bet that this business model will continue to account for a growing share of the game business. Free-to-play is a clear Winner for this year and beyond
The gaming industry is used to the rapid adoption of new gaming hardware. New consoles can sell millions of units in their first year. The very best-selling consoles, such as the Game Boy or the PlayStation, have sold more than 100 million units (the Wii is getting close to that number; the Xbox 360 and the PS3 are at 70 million units each), and the Nintendo DS and the PlayStation 2 have gotten to the amazing level of 150 million units sold.
The iPad has sold over 100 million units so far, and Android tablets have sold upwards of 40 million to date. Next year, Gartner is projecting sales of 100 million iPads and over 60 million Android tablets. By 2016, Gartner is projecting total tablet sales of nearly 370 million for the year.
Those numbers by themselves would be enough to explain why game publishers are more than a little interested in tablets as a gaming platform. Add to that the fact that games are the number one app category on tablets, where tablet owners spend the majority of their time, and that tablets are beginning to rival the current generation of consoles in graphics and processing power, and you know why publishers are shifting resources into developing tablet games.
Gamers can expect to see games specifically designed for tablets, with a wide variety of genres. Tablets will keep getting more powerful with more features, and the prices will continue to fall. Best of all, new tablet hardware is coming out every year or sooner, far exceeding the 5 to 7 year cycle of console improvement. The tablet (iOS or Android) is clearly one of the Winners in the wars of the next-generation gaming platforms.
Ten years ago, if you told an executive in the game business that China would be a leading source of game revenue, you most likely would have been laughed at. Today, China has produced several billion-dollar game companies and seems nowhere close to slowing down. This has happened in a country where consoles are illegal, and pirated software discs are regularly sold on street corners for a pittance.
The transformation of China into a significant revenue source for games has come about through several trends interacting - the rise of subscriptions, free-to-play games, virtual goods, and mobile devices. These same forces are at work around the world, and in the last year areas such as Russia, Brazil and the Middle East have emerged as major gaming markets. Many of these countries will likely never see games or consoles sold in retail stores in any significant numbers. Digital distribution on PCs and mobile platforms will be the norm. Local publishers and developers are becoming major players in the global market; look no further than Wargaming.net and World of Tanks for an example.
Game publishers and developers are expanding their attention to the entire world, and seeking partnerships or opening satellite offices to take advantage of these new revenue opportunities. Games are now being designed and created with global markets in mind, and the additional revenue from worldwide markets will certainly help many publishers and developers. The gaming market is expanding to cover the globe, and that makes it one of this year's Winners.
If you think that tablets represent a massive target market for gaming as the installed base reaches hundreds of millions of devices, how does a market of over 1 billion devices sound? That's where the smartphone industry is headed, and fast. Once again, games are one of the most popular categories of apps, and the potential is enormous. Rovio has shown how a hit game can reach hundreds of millions of devices, and Supercell is making hundreds of millions of dollars from just two games on smartphones.
Smartphones have democratized the gaming platform, reaching a broad audience that almost always has their gaming platform handy. The graphics power and other capabilities of smartphones continue to increase every year, making ever more impressive games possible. New types of gaming such as augmented reality and location-aware games are made possible by smartphones. The industry has only just begun to find out what smartphones will do to the gaming business.
One thing's already clear, and that's the amount of attention and investment going into mobile gaming. When the most staid of traditional console publishers (we're looking at you, Activision) opens up a division devoted to smartphone and tablet games, you know the business possibilities look bright. Smartphones have clearly been a gaming Winner this year, and the trend will continue.
Long-time gamers have often lamented the fact that the ever-more-hit-driven game publishing business has made sequels to some classic games impossible. Those great adventure games from LucasArts, or the wonderful RPGs from Obsidian, or that great Wasteland RPG? Yeah, nobody would ever make a new game like that... until Kickstarter. Double Fine's successful use of the crowdfunding process to make a new adventure game possible has sparked a flood of developers gleefully ignoring traditional publishers to find a fan base willing to fund a new game in a classic genre.
These new games are focused on the features the gamers (who have backed these projects with their money) are looking for, not the features somebody in marketing thinks might sell. The budgets are a fraction of the size that major games command from big publishers, but by using tools such as Unity developers think they can pull of something fans will love.
There are downsides, of course. The majority of Kickstarter projects don't reach their funding goals, and so the project never gets off the ground. We're still waiting to see exactly how good these games will be, since the process is so new none of these games have been completed yet. And there's already a sense of burnout among fans (and game media) as so many new game Kickstarters are announced. Even with those caveats, it's clear that Kickstarter is an important new way for games to get created, and thus belongs in the Winner's circle.